That is the CRE question
It seems fitting for Shakespeare to be the inspiration for this headline. In many ways, the Bard faced this same dilemma as a playwright, actor, and businessman. In his time, traveling troupes of actors would perform in rented locations or even out in the open, often passing around a hat for payment. As London’s population grew, building owners would lease out performance space and keep a portion of the profit.
When the owner wanted to do something different with the building, the actors found themselves back on the street and performing for a pittance. Shakespeare, already an established playwright and founding member of a joint-stock theater company, and his fellow shareholders were tired of remaining dependent on landlords and decided it was far better to own a theater: The Globe.
Times haven’t really changed
While times have changed, Shakespeare’s work has remained timeless – and so too has the “to buy or to lease” question. In fact, it’s often the top question among my commercial clients, regardless if they’re interested in an office, retail, or industrial space.
In order to come up with the best answer, there are a few questions and metrics that need to be examined:
1. What is the nature of the business?
All businesses are not created equal, and as a result, there are specific variables that will often drive the answer to the own/lease question. For example, a manufacturing business will most likely need to own a space so it can have a facility specifically designed for its needs – which can include smelting equipment, laser-cutting technology, or something else that’s very expensive to relocate each time a new location is leased.
On the other hand, a more standard company – office, some industrial, or even retail – may have a more difficult time coming to an own/lease conclusion. Factors that drive that decision to own include a business model that is unlikely to change, quick expansion being unlikely and plans to be in business for a long time.
2. What is the opportunity cost?
Determining this requires the entrepreneur to look at an amount of money and to decide where that money is best used. For some, the answer will be to invest in a property as an owner, anticipating back-end gains as it appreciates in value. For others, a wiser choice would be to put that money back into their business, the bond market, pork belly futures, or whatever else they choose.
3. What is the cost to operate and occupy vs. leasing?
As with any business-related decision, it’s critical to look at the bottom line – and this question gets to the heart of the own/lease dilemma. Owning and operating have their own costs, as does leasing. When looking at these numbers, it’s important for the costs of either option to be at or near each other, plus or minus 10%.
If either number is significantly higher or lower, then the next step is to closely examine what’s driving that discrepancy. With more questions come more answers, and this results in greater clarity on whether to buy or to lease.
4. What if Shakespeare lived in South Florida?
When we think of Shakespeare, we often consider him as a solitary worker, a genius locked behind closed doors with his quill and paper. Scholars, though, believe otherwise. Shakespeare was part of a talented team that worked closely together, excelling in boldness, flexibility, and foresight.
That’s pretty much how I would describe the team at Morris Southeast Group, especially as we assist clients in making smart decisions for their businesses and their investments.
For a free consultation or to learn more about our property investment opportunities and/or other services in South Florida, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Tags: Buy or Lease Space, Lease Space
